The Bloomberg Dollar Index touched its weakest level since May, driven by unexpectedly soft U.S. retail sales data that dampened expectations for further Federal Reserve interest rate hikes. The Japanese yen posted a modest gain.

The Bloomberg Dollar Index slipped 0.3%, briefly dropping as much as 0.4% following the data release. U.S. retail sales for July recorded the steepest monthly decline in over a year, as consumers pulled back on spending for automobiles and online purchases.

"The dollar extended its overnight weakness after the retail sales figures came in below expectations," said Alex Cohen, a foreign exchange strategist at Bank of America. "We had anticipated the data would trail the consensus, and this is likely a one-off event rather than a shift in consumer trends. However, the U.S. has recently released a string of weaker-than-expected economic indicators, with retail sales being the latest example."

The dollar against the yen fell as much as 0.6% to 158.60 before recovering, trading at 159.37 in the New York afternoon session, still hovering near the closely watched 160 threshold. The dollar against the Swiss franc declined 0.1% to 0.8132. Switzerland's economic growth momentum reached its strongest since 2021, highlighting the economy's resilience amid rising energy costs and persistent trade uncertainties. The euro against the Swiss franc jumped to its highest level in nearly a year.

The Australian dollar against the U.S. dollar rose 0.3% to 0.7082, having earlier touched its highest level since June before giving back some gains. Borrowing by Australian real estate investors dropped sharply in the last quarter, likely influenced by a reduction in tax incentives implemented in mid-May. The euro against the dollar advanced 0.4% to 1.1568, while the British pound against the dollar climbed 0.4% to 1.3536.